Modvat credit denial fails where excess resin consumption and clandestine disposal are not proved by tangible evidence.

Duty demand and denial of Modvat credit on PVC resin were held unsustainable because the Revenue failed to prove excess consumption or clandestine disposal with reliable evidence. Competing technical opinions did not conclusively show that emulsion grade PVC resin could not be used in PVC compound for wire and cable applications, no credible chemical test or material established non-purchase or disposal as such, and the assumed 55% usage norm was found arbitrary. The demand rested on inference rather than tangible proof, so the appeals were allowed on merits.

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Issues: Whether the demand of duty and denial of Modvat credit on PVC resin could be sustained on the basis of alleged excess consumption and presumed non-use of emulsion grade PVC resin.

Analysis: The competing technical opinions did not establish with certainty that emulsion grade PVC resin could not be used in the manufacture of PVC compound for wire and cable applications. No chemical test report or other reliable material was produced to show that the appellants had not purchased emulsion grade resin and had disposed of it as such. In several cases no sample of the manufactured compound was drawn, and where samples were tested the results were not consistent. The record also did not disclose any evidence of how the alleged excess quantity of resin was removed. The assumption that 55% PVC resin represented the correct norm was found arbitrary, particularly in light of the material showing that usage could vary and that the manufacturers' meeting indicated a higher permissible range. The demand was therefore based on inferences and not on tangible evidence.

Conclusion: The demand was unsustainable and the appellants succeeded on merits.

Final Conclusion: The appeals were allowed because the Revenue failed to prove excess consumption or misuse of Modvat credit by reliable evidence.

Ratio Decidendi: A duty demand or credit denial cannot be upheld on conjectures and surmises in the absence of tangible evidence proving the alleged excess consumption or clandestine disposal of inputs.

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